APEC Project: TWG A. Produced by. Head Office Canada: 800 Place Victoria, PO Box 113 Montreal H4Z 1M1, Quebec, Canada

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2 APEC Project: TWG A Produced by International Air Transport Association Head Office Canada: 800 Place Victoria, PO Box 113 Montreal H4Z 1M1, Quebec, Canada For Asia-Pacific Economic Cooperation Secretariat 35 Heng Mui Keng Terrace Singapore Tel: (65) Fax: (65) Website: APEC Secretariat APEC#216-TO-01.6

3 Table of contents Glossary...5 List of Abbreviations Introduction to the project Approach followed and data used Data fueling the model Gap analysis Induction Connecting potential Demand growth Other Final route forecast Canada Economy and demographics Demographics Economy Tourism Aviation demand Recent Demand Growth Air Service to Canada Aviation and the Economy Government Position on Aviation Canada-specific information Principal Airline Operators Medium-Term New Route Opportunities Service gaps Economy-Pair Analysis City Pair Analysis by APEC Economy High-level feasibility considerations Proposed route analysis Route #1 YYZ-MNL APEC Project TWG A Develop Air Connectivity in the APEC Region 3

4 4.3.2 Route #2 YYZ-SGN Route #3 YVR-MEL Route #4 YYZ-CAN Route #5 YVR-BKK Route #6 YVR-BNE Route #7 YYZ-BKK Proposed scheduled operations Route #1 YYZ-MNL Route #2 YYZ-SGN Route #3 YVR-MEL Route #4 YYZ-CAN Route #5 YVR-BKK Route #6 YVR-BNE Route #7 YYZ-BKK Conclusions and Opportunities Connectivity improvements YVR YYZ Long-term new route opportunities Development of aircraft technology Recommendations to improve air connectivity Generic recommendations Specific recommendations How the APEC economy s regulator can help Appendix Overview of IATA and IATA Consulting IATA IATA Consulting Bibliography APEC Project TWG A Develop Air Connectivity in the APEC Region 4

5 Glossary The following section presents a list of commonly used expressions and abbreviations found in the report. Connecting Potential Common rates of passengers connecting beyond/behind when traveling through a hub to/from a particular region. Induction/Stimulation Initial spike in passenger demand when new non-stop service is offered due to better accessibility, shorter travel time, lower cost, etc. Load Factor The ratio of seats sold to available seats on a particular flight. List of Abbreviations PDEW Passenger daily each way (passenger demand in each direction between a select origin and destination). SDEW Seats daily each way (number of seats offered in each direction on a non-stop or one-stop flight segment). OD Origin and destination. Airport Codes: AAQ Anapa, RUS ACA Acapulco, MEX ADL Adelaide, AUS AER Sochi, RUS AGU Aguascalientes, MEX AKJ Asahikawa, JPN AKL Auckland, NZ ANF Antofagasta, CHL AOR Alor Setar, MAS AQP Arequipa, CHL ARH Arkhangelsk, RUS ASF Astrakhan, RUS ATL Atlanta, US AUS Austin, US AYP Ayacucho, PE BCD Negros Occidental, PH BDJ Banjarmasin, INA BHE Blenheim, NZ BJX Silao, MEX BKI Kota Kinabalu, MAS BKK Bangkok, THA BLI Bellingham, US BMV Buon Ma Thuot, VN BNA Nashville, US BNE Brisbane, AUS BOS Boston, US BPN Balikpapan, INA BUR Burbank, US BWN Bandar Seri Begawan, BD BXU Butuan, PH CAN Guangzhou, PRC CBO Cotabato, PH CCP Concepción, CHL CEB Cebu, PH CEI Chiang Rai, THA CEK Chelyabinsk, RUS CEN Ciudad Obregón, MEX CGK Jakarta, INA CGO Zhengzhou, PRC CGQ Changchun, PRC APEC Project TWG A Develop Air Connectivity in the APEC Region 5

6 CGY Cagayan de Oro and Iligan, PH CHC Christchurch, NZ CJA Cajamarca, PE CJC Calama, CHL CJJ Cheongwon-gu, ROK CJU Jeju, ROK CKG Chongqing, PRC CLT Charlotte, US CME Ciudad del Carmen, MEX CNS Cairns, AUS CNX Chiang Mai, THA CSX Changsha, PRC CTS Hokkaido, JPN CTU Chengdu, PRC CUN Cancun, MEX CUZ Cusco, PE CVG Cincinnati, US CXR Nha Trang, VN DAD Da Nang, VN DAL Dallas, US DCA Washington, US DEN Denver, US DFW Dallas, US DGO Durango, MEX DGT Dumaguete, PH DJB Jambi City, INA DLC Dalian, PRC DLI Da Lat, VN DME Domodedovo, RUS DMK Bangkok, THA DPS Bali, INA DRW Darwin, AUS DTW Detroit, US DUD Dunedin, NZ DVO Davao City, PH EAT Douglas County, US EWR Newark, US EZE Buenos Aires, ARG FAT Fresno, US FLL Fort Lauderdale, US FOC Fuzhou, PRC FSZ Shizuoka, JPN FUK Fukuoka, JPN GDL Guadalajara, MEX GEG Spokane, US GMP Seoul, ROK GUM Tamuning and Barrigada, GUM GYS Guangyuan, PRC HAK Haikou, PRC HAN Ha Noi, VN HGH Hangzhou, PRC HKG Hong Kong, China, HKC HKT Phuket, THA HND Tokyo, JPN HNL Honolulu, US HRB Harbin, PRC HUI Hue, VN HUZ Huizhou, PRC IAD Washington, US IAH Houston, US ICN Seoul, ROK ILO Ilo, PE IQQ Iquique, CHL IQT Iquitos, PE ISG Ishigaki, JPN ITM Osaka, JPN IWK Iwakuni, JPN JFK New York, US JHB Johor, MAS JJN Quanzhou, PRC JNZ Jinzhou, PRC JOG Yogyakarta, INA JUL Juliaca, PE KBR Kota Bharu, MAS KBV Krabi, THA KCH Kuching, MAS KGD Kaliningrad, RUS KHH Kaohsiung, CT KHN Nanchang, PRC KIX Osaka, JPN KKE Kerikeri, NZ KLO Kalibo, PH APEC Project TWG A Develop Air Connectivity in the APEC Region 6

7 KMG Kunming, PRC KNH Kinmen, PRC KNO Kuala Namu, INA KOJ Kirishima, JPN KRR Krasnodar, RUS KUF Samara, RUS KUL Kuala Lumpur, MAS KWL Guilin, PRC KZN Tatarstan, RUS LAS Las Vegas, US LAX Los Angeles, US LED Saint Petersburg, RUS SVX Yekaterinburg, RUS LGA NY La Guardia, US LGK Padang Matsirat, Langkawi, MAS LHW Lanzhou, PRC LIM Lima, PE LOP Lombok, INA LPF Liupanshui, PRC LPT Lampang, THA MBT Masbate City, PH MCC Sacramento, US MCO Orlando, US MDW Chicago, US MDZ Mendoza, ARG MEL Melbourne, AUS MEX Mexico City, MEX MFM Macau, MAC MIA Miami, US MLM Alvaro Obregon, Michoacan, MEX MNL Manilla, PH MRY Monterey, US MSP Minneapolis Saint Paul, US MTT Cosoleacaque, MEX MTY Apodaca, MEX MZG Magong City, CT NBC Nizhnekamsk, RUS NGB Ningbo, PRC NGO Nagoya, JPN NKG Nanjing, PRC NKM Nagoya, JPN NNG Nanning, PRC NPE Napier, NZ NPL New Plymouth, NZ NRT Tokyo, JPN NSN Nelson, NZ NTG Nantong, PRC OAK Oakland, US OAX Oaxaca, MEX OKA Naha, JPN OOL Gold Coast, AUS ORD Chicago, US OVB Novosibirsk, RUS OZC Ozamiz, PH PDG Sumatra, INA PEK Beijing, PRC PEN Penang, MAS PER Perth, AUS PHL Philadelphia, US PHX Phoenix, US PIU Piura, PE PLM Palembang, INA PLW Palu, INA PMC Puerto Montt, CHL PMR Palmerston North City, NZ PNK Pontianak, INA POM Port Moresby, PNG PPQ Paraparaumu, NZ PQC Phu Quoc, VN PSP Palm Springs, US PUS Busan, ROK PVG Shanghai, PRC PVR Puerto Vallarta, MEX PXU Pleiku, VN PYX Pattaya, THA RDU Raleigh, Durham, US REP Siem Reap, KHM REX Reynosa, US RGN Mingaladon, MMR APEC Project TWG A Develop Air Connectivity in the APEC Region 7

8 RNO Reno, US ROC Rochester, US ROT Rotokawa, NZ ROV Rostov-on-Don, RUS RSU Yeosu, ROK RTW Saratov City, RUS RXS Roxas City, PH SAN San Diego, US SCL Santiago, CHL SEA Seattle, US SFO San Francisco, US SGN Ho Chi Minh, VN SHA Shanghai, PRC SHE Shenyang, PRC SIN Singapore, SGP SIP Simferopol, UKR SJC San Jose, US SJD San Jose del Cabo, MEX SLC Salt Lake City, US SLP San Luis Potosi, MEX SMF Sacramento, US SNA Santa Ana, US SOC - Solo/Surakarta, INA SPN Saipan, US SRG Semarang, INA STL St. Louis, US STW Stavropol Krai, RUS SUB Surabaya, INA SVO Moscow, RUS SVX Koltsovo, RUS SWA Jieyang Chaoshan, PRC SYD Sydney, AUS SYO Sakata, JPN SYX Sanya, PRC SZX Shenzhen, PRC TAC Tacloban, PH TAM Tampico, MEX TAO Qingdao, PRC TAV Tau, ASM TBP Tumbes, PE TDX Trat, THA TGG Kuala Terengganu, MSA TGZ Chiapa de Corzo, MEX TIJ Tijuana, MEX TKG Bandar Lampung, INA TLC Toluca, MEX TNA Jinan, PRC TPE Taipei, CT TPP Tarapoto, PE TRC Torreon, MEX TRU Trujillo, PE TSA Songshan, CT TSN Tianjin, PRC TTJ Tottori, JPN TXG Taichung, CT TYN Taiyuan, PRC UFA Ufa, RUS UIH Qui Nhon, VN UKB Kobe, JPN UPG Makassar, INA URC Urumqi, PRC USM Koh Samui, THA VCL Chu Lai, VN VDH Dong Hoi, VN VER Veracruz, MEX VII Vinh, VN VKO Moscow, RUS VOZ Voronezh, RUS VSA Villahermosa, MEX VVO Vladivostok, RUS WAG Whanganui, NZ WEH Weihai, PRC WLG Wellington, NZ WNZ Wenzhou, PRC WRE Whangarei city, NZ WUH Wuhan, PRC WUX Wuxi, PRC XIY Xi'an, PRC XMN Xiamen, PRC APEC Project TWG A Develop Air Connectivity in the APEC Region 8

9 YEG Edmonton, CDA YGJ Yonago, PRC YHZ Halifax, CDA YKA Kamloops, CDA YLW Kelowna, CDA YNJ Yanji, PRC YOW Ottawa, CDA YPR Prince Rupert, CDA YQM Moncton, CDA YQR Regina, CDA YSJ Saint John, CDA YTS Timmins, CDA YUL Montreal, CDA YVR Vancouver, CDA YWG Winnipeg, CDA YXC Cranbrook, CDA YXS Prince George, CDA YXT Terrace-Kitimat, CDA YYB North Bay, CDA YYC Calgary, CDA YYJ Victoria, CDA YYZ Toronto, CDA YZP Sandspit, CDA YZR - Sarnia, CDA ZAL Valdivia, CHL ZCL Calera de Victor Rosales, MEX ZQN Queenstown, NZ ZUH Zhuhai, PRC APEC Project TWG A Develop Air Connectivity in the APEC Region 9

10 1. Introduction to the project The APEC Secretariat and Economies have observed that the flow of goods, services, capital and people in the APEC Region is constrained by air connectivity limitations and gaps that exist between the APEC economies, particularly between the Americas and Asia Pacific. Improving connectivity is a long-term target of the APEC economies. The APEC Tourism Working Group (TWG) and Transport Working Group (TPTWG) are particularly interested in pursuing this long-term target. This Project (the Project ) was proposed in 2014 by Thailand and co-sponsored by Australia; Indonesia; Malaysia; Peru; the Philippines; and Chinese Taipei and with the aim of developing air connectivity in the APEC Region and in turn stimulate a more efficient flow of goods, services, capital and people. The Project has the following objectives: To develop market-demand-based recommendations for potential new routes, improved flight schedule connection times and hubs between APEC economies based on analysis of air passenger flow, schedules and new aircraft range capability, including analysis of the number of seats, flights and air traffic. To help airlines and regulators develop more accurate demand predictions so they can in turn help APEC economies by providing better air connectivity services, capacity and schedules. The Project was approved in December 2014 with IATA Consulting selected as the consultant in May IATA was mandated to complete the following tasks: 1. Develop market-demand-based recommendations for potential new routes. 2. Provide recommendations to improve connection between flights at the main hubs linking the APEC economies. 3. Determine which APEC market-pairs could benefit from the introduction of new aircraft with an extended range. APEC Project TWG A Develop Air Connectivity in the APEC Region 10

11 2. Approach followed and data used This section explains the methodology applied by IATA and presents the data used to feed the various underlying analysis. To conduct the analysis, IATA took systematic steps identified in Figure 1. Figure 1: Process used to complete analytical work The first step involved a demand-supply gap analysis aiming at identifying unserved routes presenting potential demand for future development. The size that this potential demand could actually represent if turned into a direct service in the future was subsequently forecast, using realistic assumptions related to induction, connecting potential and demand growth. 2.1 Data fueling the model Principal data for the model originates from Airport IS. IATA s Airport IS system uses IATA billing and settlement plan data to provide detailed demand information on total air traffic. The database is complemented by a supply module (SRS Analyser) provided by Innovata. This data has been available for over a 10-year historical period (since 2005). Approximately 18,500 international APEC routes were analyzed in the execution of this project. Airport IS data was particularly relevant in the gap analysis and assumption development. Academic articles and published ratios were also used to justify some of the assumptions, including induction and origin destination traffic captured through direct service. APEC Project TWG A Develop Air Connectivity in the APEC Region 11

12 For some of the other variables used in the final traffic determination, economic forecasts were extracted from IHS Global Insight, one of the world s largest commercially available economic databases. Tourism data was extracted from the United Nations World Tourism Organization. 2.2 Gap analysis IATA applied a funnel approach in conducting the analysis. It first considered the market at the economy pair level, followed by city pairs leading to a market potential assessment (see figure 2 below). Both seat supply and passenger demand were considered in the analysis to identify gaps in air service. Figure 2: Funnel approach used to conduct analysis The economy-pair analysis allowed IATA to identify unserved markets. The analysis showed that there was an average daily demand of 649 Passengers Daily Each Way (PDEW) in 2015 that fly via existing connecting routs between Canada and the Philippines where only an average of 478 direct (on non-stop service) seats were offered daily each way. When extending the analysis down to the city pairs, it was possible to identify the large unserved markets between the two economies: 224 Passengers Daily Each Way (PDEW) travelled between YYZ and MNL in APEC Project TWG A Develop Air Connectivity in the APEC Region 12

13 Origin Airport Origin Economy Destination Airport Destination Economy 2015 OD Demand (PDEW) Table 1: Top 30 unserved routes from Canada, 2015 data non-stop seats in 2015 (SDEW) 1-stop seats in 2015 (SDEW) YYZ Canada MNL The Philippines YYZ Canada SGN Viet Nam YYC Canada ITM Japan YUL Canada PVG China YYZ Canada SYD Australia YYC Canada MNL The Philippines YYZ Canada CAN China YVR Canada BKK Thailand YWG Canada MNL The Philippines YVR Canada ITM Japan YVR Canada BNE Australia YYZ Canada BKK Thailand YVR Canada MEL Australia YYC Canada HKG Hong Kong, China YEG Canada MNL The Philippines YUL Canada LIM Peru YYZ Canada FUK Japan YYC Canada ICN Republic of Korea YUL Canada MNL The Philippines YYZ Canada SIN Singapore YYC Canada PEK China YVR Canada SGN Viet Nam YVR Canada SIN Singapore YUL Canada BKK Thailand YYZ Canada MEL Australia YOW Canada PEK China YUL Canada NRT Japan YVR Canada LIM Peru YYZ Canada ITM Japan YUL Canada SCL Chile APEC Project TWG A Develop Air Connectivity in the APEC Region 13

14 2.3 Induction To determine realistic estimates of the success of new air service, various assumptions were considered and applied to current passenger demand. Induction is a well proven concept that explains how new direct air service has a significant impact on increasing the total number of O&D passengers on a city pair market. This is due to product improvement: shorter travel time, greater convenience and more affordable ticket prices. The extent to which the market will be stimulated varies based on current levels of service (price and flight frequency) offered on a particular route. As stated in the Successful Air Service Development presentation (ICF International, 2014) a market s first non-stop flight can stimulate demand by 100% to 300%. IATA quantified this induction value to show a relationship between two primary factors: region pair and the size of the market before a new route is initiated. The table below shows the stimulation rates considered for this analysis of Canada. For some instances where inadequate data (less than 4 routes) to conduct a region pair analysis was available, other variables were considered, including the average of all routes, the average of long-haul routes or the average of short-haul routes depending on the specific market. Market Base of 10,000 Annual Pax Base of 25,000 Annual Pax Base of 50,000 Annual Pax All APEC Economies 130% 42% 18% Long Haul 101% 36% 16% Short Haul 150% 50% 21% North America-Asia 104% 40% North America-China 137% 55% North America-North East Asia 70% 26% North America-Peru, Chile 90% 28% Table 2: Stimulation rates applied to the analysis 2.4 Connecting potential Increasing the quality of connections through alliance agreements, codeshares, shorter journey times or fewer stops increases overall travel demand in connecting markets. It is a normal phenomenon for new routes to not only increase demand for the city pairs served, but also for beyond and behind destinations that are now more easily accessible (Swan, 2008). On long-haul routes, often two-thirds of the passengers will make a connection. APEC Project TWG A Develop Air Connectivity in the APEC Region 14

15 IATA s analysis found that connecting markets would stimulate at various rates depending on the region of origin and the hub airport being flown through. These ratios are applied in determining the impact of a new route on connecting flows. Connecting rates to be applied in this project for flights connecting at the main Canadian hubs were estimated based on traffic from various regions flying YVR, YYC, YYZ and YUL, as well as the foreign hubs being flown to and from Canada. YVR YYC YYZ YUL North America 30.30% 31.90% 36.50% 24.10% Australasia 51.30% 54.30% Asia 30.20% 47.30% 21.10% 81.30% South East Asia 80.40% 49.60% China 28.50% 25.90% North Asia 27.50% 33.10% 31.40% 53.20% Peru-Chile 70.60% Table 3: Average rate of connecting passengers at hub airports in Canada 2.5 Demand growth This refers to the consideration of the natural growth observed on a market segment. IATA Economics publishes a detailed inter- and intra-regional global traffic forecast. These demand growth forecasts were used to provide a regionally specific rate of growth to and from Canadian between 2016 and Growth was typically seen to be approximately 5%. Demand growth also refers to the fact that approximately 80% of a market will choose a non-stop flight option if it is available (Belobaba, 2015). 2.6 Other Other factors, including distance and unused traffic rights, were used to refine the assessment of potential new services to be opened. Distance considers the possibility of offering a non-stop flight with existing technology, using 15,000km as a maximum distance for a non-stop flight. Unused traffic rights consider the bilateral agreements between economies and the current use of those bilateral rights. 2.7 Final route forecast After conducting the gap analysis and applying the established rates from the various assumptions, the future market potential was estimated, as illustrated in Figure 3 below for the YYZ-BKK route. APEC Project TWG A Develop Air Connectivity in the APEC Region 15

16 Origin Airport Destination Airport Destination Economy 2015 OD Nondirect Demand OD Captured Though Deorect Service OD Stimulation Behind/Beyond Connecting Potential YYZ BKK Thailand (A) 51 (B) 80% (C) 54% (D) 54% Caculations (1) 41 (1) = AxB 23 (2) (2) = 1xC Subtotal (3) 63 (3) = 1+2 YYZ - BKK Total Market Potential (2015 Base) (4) 138 (4) = 3/(1-D) 3. Canada Figure 3: Example of the various assumptions being applied to determine the potential for new air service A summary of Canada s economy and demographics, aviation demand, and airport-specific information is presented in this section. 3.1 Economy and demographics Canada is the world's second-largest nation by total area and the largest North American economy. Canada extends from the Pacific to the Atlantic and north to the Arctic Ocean. The United States- Canadian border is the longest land border in the world Demographics Canada s population was estimated at 36.3 million in 2016 (United Nation 2015). The majority of Canadians live in a narrow Southern belt along the border with the United States. Canada is one of the most sparsely populated countries in the world, with much of its land inhospitable. The economy s population density was just 4 persons per square kilometer in 2016 (United Nation, 2015). The most common ethnic origins in Canada are European (77%), Asian (14%) and Aboriginal (4%) (2011 Census). English and French are the official languages of Canada. More than half of Canadians reported English being their first language and around 23.2% reported French. The only other language in Canada that is the mother tongue of more than a million people is Chinese. Canada s population is expected to continue growing at a historical rate of approximately 0.81% p.a. over the next 10 years (United Nation, 2015). Canada is highly urbanized with approximately 81.8% of the population living in urban areas. More than half of Canadians live in just two provinces: Ontario, where one in three Canadians live, and Quebec, where almost a quarter of Canadians live. Major urban provinces/territories and populations include: APEC Project TWG A Develop Air Connectivity in the APEC Region 16

17 Province Population (millions) 1. Ontario Quebec British Columbia Alberta Manitoba Saskatchewan Nova Scotia 0.9 Table 4: Largest Canada provinces (2016 estimates, Statistics Canada) Economy Canada s economy is largely driven by its manufacturing, mining and service sectors in the past decades. The petroleum sector is rapidly expanding, as Alberta's oil sands significantly boosted Canada s proven oil reserves. Canada now ranks third in the world in proven oil reserves, behind Saudi Arabia and Venezuela, and is the world s fifth-largest oil producer. (Central Intelligence Agency). As with other developed economies, the Canadian economy is dominated by the service sector, which makes up 70.5% of its GDP, followed by industry (28.9%) and agriculture (1.6%) (Central Intelligence Agency). In 2015, Canada ranked 10th in terms of economy size and 15th in terms of per capita income. Falling oil prices have negatively affected the Canadian economy in recent years; its GDP growth has been approximately 1.97% p.a. over the past three years (Intereconomyal Monetary Fund, 2016). The U.S. is Canada s principal trading partner, thanks to the 1989 U.S.-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA) (which includes Mexico). Canada enjoys a substantial trade surplus with the U.S., which absorbs about three-fourths of Canadian merchandise exports each year. Canada is the U.S.'s largest foreign supplier of energy, including oil, gas and electric power, and a top source of U.S. uranium imports. Other major trading partners of Canada include China and Mexico (Central Intelligence Agency). Economic growth in Canada is projected to recover in 2016 and reach 2.3% in The drag from falling energy investments should fade away by early 2016, while non-energy exports lead the subsequent pick-up with business investment following. Reducing barriers to foreign direct investment in telecommunications, broadcasting and airlines, and continued efforts to increase the quantity and productivity of R&D would raise long-term growth prospects (OECD). APEC Project TWG A Develop Air Connectivity in the APEC Region 17

18 3.1.3 Tourism Tourism is Canada s largest service export and is important to all regions of the economy. It is present in both urban and rural areas, as well as in indigenous communities and in the North. Domestic travel within Canada has grown steadily since 2000, while the number of intereconomiesal arrivals to Canada has been relatively static since In 2015, Canada received 17.8 million international tourists, a growth of 7.5% from the previous year, while the growth in international tourist arrivals globally was 4.4%. The United States is Canada s most important market, with a 70% share of overnight visitors in The number of international arrivals to Canada is expected to increase to 25.4 million by 2026, at an annual rate of 2.8%. In 2015, the travel and tourism sector contributed (directly and indirectly) to 6.4% of GDP, with the direct contribution estimated at 1.8% (World Travel and Tourism Council, 2016). 3.2 Aviation demand Recent Demand Growth In 2015, an estimated 131 million enplaned and deplaned passengers were reported at Canadian airports, up by 0.3% compared to 2014, comprising 78.4 million in domestic services, 25.6 million on cross-border services (to U.S.) and 17.0 million on other international services. Between 2005 and 2015, total enplaned and deplaned air passenger traffic grew by 38%, or 3.3% per year on average (Transport Canada, 2016). Figure 4: Total air traffic Canada (Transport Canada, 2016). APEC Project TWG A Develop Air Connectivity in the APEC Region 18

19 In 2015, Canadian airports loaded and unloaded an estimated 1.2 million tonnes of freight, up by 7.2% from The value of Canada s international air cargo trade amounted to $128.1 billion in 2015, an increase of 9.6% over High-value commodity groups carried by air were mainly machinery and electronic equipment, aircraft material, precious minerals/stone and pharmaceutical products (Transport Canada, 2016) Air Service to Canada International capacity to Canada has grown from 22.3 million inbound seats in 2005 to 33.5 million in The growth has mainly been driven from North America (U.S., Mexico, etc.), Europe (UK, France, Germany, etc.), Asia (Hong Kong and China, Japan, etc.) and the Caribbean (Cuba, Dominican Republic, Jamaica, etc.) (Airport IS, 2016). In 2015 the strongest direct aviation capacity growth within the APEC region was to the Philippines (up by 34%), Japan (up by 18.2%) and Peru (up by 17.4%) (Airport IS, 2016) Aviation and the Economy Economic Footprint In 2012 the aviation industry directly supported 141,000 jobs, producing $10.6 billion in direct GDP (2012 dollars). Including multiplier effects and inflation, the air transportation industry supported almost 405,000 jobs in 2012, generating $34.9 billion in GDP (Conference Board of Canada, 2013). Consumer Benefits The aviation industry has benefits for vacationing overseas and enables long-haul holidays. In 2013, among all modes of transport, air transport accounted for 30% of overnight stays made by Canadian residents to the United States for non-business purpose. And this percentage increases to 100% when Canadian residents make overnight trips to other non-u.s. overseas destinations (Statistics Canada, 2015). Long-term impact Economically, aviation has a long-term impact in Canada. According to the Conference Board of Canada (2013), air travel enables long-term economic growth by: Providing better access to foreign markets for Canadian-based business. Canada is a tradedependent economy, with one in three jobs dependent on exports. Thus, Canadian business relies on Canada s air transportation networks to test markets, meet customers, and deliver goods and services overseas. Many of the tangible products Canada produces come from remote and northern regions, where roads may be unavailable during winter, and many of Canada s raw materials and services are imported from overseas. As such, air infrastructure is a crucial enabler for international trade. APEC Project TWG A Develop Air Connectivity in the APEC Region 19

20 Attracting skilled foreign labour. New Canadians value the connectivity offered by air travel, as they will often travel back to their home of origin to visit friends and family or have their families visit them. This is demonstrated by the fact that 17% of Canadian residents overnight trips abroad are VFR (visiting friends and relatives) and 27% of overnight trips by visitors to Canada are VFR. As such, air transportation is key to advancing the Canadian economy, given the skill shortage and demographic challenge Canada faces today and will likely face well into the future. Two of the fastest-growing regions in the world in terms of demand for air travel are Asia and Latin America. Growth of these regions is forecast to continue to be much higher than North America and Europe. According to Boeing s forecast (2015), Asia s annual traffic growth will be 6.2% over the next 20 years and Latin America 6.6%, compared with 2.4% for North America and 3.3% for Europe. China, the world s top tourism source market, increases expenditure abroad by 27% in 2014 to reach a total of USD 165 billion. This widened the gap in tourism expenditure between China and the second largest spender, the United States, to USD 54 billion (World Tourism Organization 2015). Canadian airports are well positioned to be connecting points for traffic between China/Japan/Republic of Korea and Latin America (Mexico and Central South America). Generally, flight distances are too long to be flown nonstop on most of these routes Government Position on Aviation Transport Canada collaborates with other Canadian government departments, airport authorities, airlines and, where applicable, Canada s bilateral partners to develop and promote measures that facilitate the efficient, safe and secure flow of international passenger and cargo traffic. The Canadian government has been taking a pro-active approach to the liberalization of air transport agreements (ATA). As of May 2016, Canada has concluded open sky agreements with 46 economies that cover approximately 70% of Canada's international passenger traffic. Currently, about 98%of Canada s overall international passenger traffic is covered by ATAs that are either open or contain sufficient capacity to meet current or foreseeable demand. Since 2006, the number of bilateral partners has gone from 73 to 115 (58% increase). In 2015 alone, Canada concluded a number of expanded air transport agreements with key bilateral partners. For instance, Canada expanded its agreements with China (5 th -largest market) and Australia (16 th -largest market) (Transport Canada). The Canadian government also puts high emphasis on aviation safety. In 2014, Canada and China reached an agreement on the Bilateral Aviation Technical Arrangement (BATA), which represents the next step in the evolution of Canada s civil aviation safety relationship with China. The BATA will help streamline the approval process for aeronautical products between the two economies and eliminate the need for individual technical arrangements. APEC Project TWG A Develop Air Connectivity in the APEC Region 20

21 3.3 Canada-specific information Canada s National Airports System (NAS) includes 26 nationally significant airports. The NAS, established in 1994, includes those airports considered essential to Canada's air transportation system, supporting both domestic prosperity and international competitiveness. Airports maintaining annual passenger levels of 200,000 for three consecutive years are candidates for inclusion in the NAS. Conversely, airports other than those serving national, provincial or territorial capitals, whose traffic falls below 200,000 passengers for three consecutive years, will no longer be considered part of the NAS. Currently, the 26 NAS airports serve 94%of all scheduled passenger and cargo traffic in Canada and are the points of origin and destination for almost all interprovincial and international air service in Canada (TransportCanada, 2016) Busiest Airports in Canada Rank Airport Most Recent Annual Traffic Statistics in million, (2015) % of Total Canadian Market 1 YYZ % 2 YVR % 3 YUL % 4 YYC % 5 YEG % 6 YOW % Other Airports % Table 5: Top 6 busiest airports in Canada (Source: Transport Canada, 2015). APEC Project TWG A Develop Air Connectivity in the APEC Region 21

22 Figure 5: Map of Canada National Airport System (Source: Transport Canada) Toronto Pearson International Airport (YYZ) Toronto Pearson International Airport is located 22.5km northwest of downtown Toronto, serving the city of Toronto, Ontario, Canada, its metropolitan area, and the Golden Horseshoe an urban cluster of 8.7 million people. YYZ is the largest and busiest airport in Canada. In 2015, it handled 39 million passengers and 446,000 aircraft movements. YYZ is the main hub for Air Canada, WestJet and cargo airline FedEx Express. The airport offers an extensive network of domestic flights to all major and many secondary cities across all provinces of Canada, with more than 75 airlines serving 180+ international destinations. The airport has two active terminals, Terminal 1 and Terminal 3. Both terminals are designed to handle all three sectors of travel (domestic, trans-border, and international), which results in terminal operations at Pearson being grouped for airlines and airline alliances, rather than for domestic and international routes. A third terminal, the Infield Terminal (IFT), is not currently used for regular operations at Pearson. APEC Project TWG A Develop Air Connectivity in the APEC Region 22

23 Vancouver International Airport (YVR) Vancouver International Airport is located on Sea Island in Richmond, British Columbia, Canada, about 12km (7.5 mi) from downtown Vancouver. YVR is the second-busiest airport in Canada by aircraft movements and passengers (19.2 million in 2015). It offers daily non-stop flights to Asia, Europe, Oceania, the United States, Mexico and other airports in Canada. It is a hub for Air Canada, as well as a focus city for WestJet. It is also an operating base for Air Transat. The airport has two terminals and three runways. Montreal Pierre Elliott Trudeau International Airport (YUL) Montreal Pierre Elliott Trudeau International Airport is a Canadian airport located on the Island of Montreal, 20km from Montreal s downtown core. It is an international airport serving Greater Montreal and the adjacent regions in Ontario, Vermont and New York. YUL is the busiest airport in the province of Quebec, the third-busiest airport in Canada by passenger traffic with 14.4 million passengers in It is one of four Air Canada hubs. There are currently three runways in operation, two parallel runways aligned both in a north-south direction and one single runway in an east-west direction. YUL consists of one terminal only, on two levels, divided into four different zones: the public area (departures and arrivals level), the domestic jetty, the international jetty and the trans-border jetty. Calgary International Airport (YYC) Calgary International Airport serves Calgary, Alberta, Canada, and the surrounding region; it is situated approximately 17km northeast of downtown Calgary. YYC offers scheduled non-stop flights to major cities in Canada, the United States, Mexico, the Caribbean, Europe and East Asia. It serves as headquarters for WestJet and as a hub airport for Air Canada and Air Canada Express. In 2015, it handled 14.3 million passengers. The airport currently has one terminal; a new terminal, which will be almost double the size of the current terminal, is under construction and is scheduled to open for service on October 31, Edmonton International Airport (YEG) Edmonton International Airport is the primary air passenger and air cargo facility in the Edmonton region of the Canadian province of Alberta. Located 26km south-west of downtown Edmonton, YEG served 7.3 million passengers in It has one terminal and two runways. Ottawa Macdonald-Cartier International Airport (YOW) Ottawa Macdonald-Cartier International Airport is located in the south end of the city, 5.5 nautical miles (10.2km) south of downtown Ottawa. It is Canada's sixth-busiest airport and Ontario's secondbusiest airport by airline passenger traffic, with 4.3 million passengers in YOW is an Air Canada focus city and the home base for First Air. It consists of one terminal and three runways. APEC Project TWG A Develop Air Connectivity in the APEC Region 23

24 3.3.2 Principal Airline Operators The major Canadian airlines include Air Canada, WestJet, Air Transat and Jazz. In addition to these four major carriers, a number of carriers also offer service to various international and domestic destinations. Air Canada Air Canada is the flag carrier and largest airline of Canada. The airline, founded in 1937, provides scheduled and charter air transport for passengers and cargo to 182 destinations worldwide. It is the world's 10 th -largest passenger airline by fleet size and is a founding member of the Star Alliance. The carrier's operating divisions include Air Canada Cargo, Air Canada Express and Air Canada rouge. Air Canada has four hubs in Canada, with the largest one at YYZ, located in Mississauga, Ontario. The airline s fleet comprises of 131 aircrafts. International APEC destinations served by Air Canada are Australia, Canada, Chile, China, Hong Kong, China, Japan, Mexico, Republic of Korea and the United States. WestJet WestJet is a Canadian airline that began as a low-cost alternative to the economy s competing major airlines. Founded in 1996, it is currently the second-largest Canadian air carrier. The airline has hubs at YYC and YYZ. Regional airline WestJet Encore is its fully owned subsidiary. WestJet has a fleet of 118 aircrafts. International APEC destinations it serves are Mexico and the United States. Air Transat Air Transat is a Canadian airline based in YUL, operating scheduled and charter flights, serving 60 destinations in 25 countries. Its main Canadian gateways are YUL and YYZ. Its fleet consists of 34 aircrafts. International APEC destinations it serves are Mexico and the United States. Jazz Jazz is a Canadian regional airline based at YHZ in Enfield. Jazz Aviation provides regional and charter airline services in Canada and the United States, primarily under contract to Air Canada, using the brand name Air Canada Express and Jazz Charters. With 127 aircrafts, it is Canada's third-largest airline in terms of fleet size. The only international APEC destination Jazz serves is the United States. 4. Medium-Term New Route Opportunities This section of the report is dedicated to explaining potential future air service developments to and from Canada within the APEC region over the next three years. Service gaps, route traffic forecasts and high level feasibility analysis conducted are hereby presented. APEC Project TWG A Develop Air Connectivity in the APEC Region 24

25 4.1 Service gaps As part of the process, air service to Canada was considered on both an economy-pair and city-pair basis Economy-Pair Analysis The following table outlines supply and demand for air travel between Canada and other APEC economies. The data essentially shows the economy pairs where: Non-stop service is sufficiently supplied (in green). Air service is adequate but may need to be improved in the long term (in yellow). Air service is at a shortfall and should be improved in the medium term (in red). Origin Economy Demand (PDEW) Non-Stop Seat Offer (SDEW) One-Stop Seat Offer (SDEW) Ratio of Demand to Supply Australia (AUS) % Brunei Darussalam (BD) * Canada (CAN) 85, ,571 19,999 48% Chile (CHL) % People's Republic of China (PRC) 2,227 2, % Hong Kong, China (HKC) 988 1, % Indonesia (INA) ** Japan (JPN) 1,214 1, % Republic of Korea (ROK) % Malaysia (MAS) * Mexico (MEX) 4,580 5, % New Zealand (NZ) % Papua New Guinea (PNG) * Peru (PE) % The Republic of Philippines (PH) % Russia (RUS) * Singapore (SGP) ** Chinese Taipei (CT) % Thailand (THA) *** United States (US) 34,145 47,682 2,777 68% Viet Nam (VN) *** Table 6: Total demand-to-supply ratio PDEW (Source: IATA analysis of Airport IS Data) *Delineates an economy pair with no air service that has inadequate demand to consider air service in the long term **Delineates an economy pair with no air service that may have adequate demand for service in the long term (next 10 years) APEC Project TWG A Develop Air Connectivity in the APEC Region 25

26 Typical ratios found in highly liberalized international markets with adequate capacity for demand range from 60% to 80%. In some cases, the demand-to-supply ratio is less than 60%; however, supply is still adequate because the low percentage figure may be representative of high rates of connecting passengers flying between economies (not shown in the above table; only OD traffic is displayed). Where demand-to-supply ratios are higher than 80%, seat offer should be increased between economy pairs (e.g. Canada and Australia at 97%, where the non-stop supply barely covers the total demand between the economies). Based on the above analysis at the economy level, Canada may have an opportunity to improve service to seven economies in the long-term (highlighted in yellow in the above table) and could take action to improve service to Australia, Japan, Mexico, Peru, the Philippines, Thailand and Viet Nam in the medium term (highlighted in red). The following section will look into greater detail at these shortfalls in supply at a city pair level City Pair Analysis by APEC Economy When considering the shortfall in service to city pairs, 27 have a demand of more than 30 PDEW with no non-stop service, as illustrated in table 8 below. These 27 routes are spread throughout the different economies identified at the economic pair analysis in the previous section. This section explains in greater detail the economy pairs with air service development potential to Canada. APEC Project TWG A Develop Air Connectivity in the APEC Region 26

27 Origin Airport Origin Economy Destination Airport Destination 2015 OD Demand Economy (PDEW) YYZ Canada SYD Australia 62 YVR Canada BNE Australia 52 YVR Canada MEL Australia 50 YYZ Canada MEL Australia 31 YUL Canada PVG China 63 YYZ Canada CAN China 60 YYC Canada PEK China 38 YOW Canada PEK China 31 YYC Canada HKG Hong Kong, China 48 YUL Canada HKG Hong Kong, China 48 YYC Canada ITM Japan 66 YVR Canada ITM Japan 53 YVR Canada FUK Japan 40 YUL Canada LIM Peru 43 YYZ Canada MNL The Philippines 224 YYC Canada MNL The Philippines 60 YWG Canada MNL The Philippines 55 YEG Canada MNL The Philippines 44 YUL Canada MNL The Philippines 39 YYC Canada ICN Republic of Korea 39 YYZ Canada SIN Singapore 38 YVR Canada SIN Singapore 37 YVR Canada BKK Thailand 57 YYZ Canada BKK Thailand 51 YUL Canada BKK Thailand 35 YYZ Canada SGN Viet Nam 70 YVR Canada SGN Viet Nam 38 Table 7: APEC routes to Canada with more than 30 PDEW and no non-stop service 1 (Source: IATA Analysis of Airport IS data). 4.2 High-level feasibility considerations City pairs with more than 30 PDEW (10,950 annual passengers one-way) were considered as the minimum threshold for analysis. 27 city pairs to and from Canada met this criterion as shown above. To further define a potentially viable route, IATA used two metrics: distance and market size. Due to aircraft range restrictions, distance eliminated any city pairs more than 15,000km from one another. The second criteria used the application of induction and connection potential rates (unique to each region and route type) to existing OD demand to determine whether the route would garner a minimum demand of 158PDEW for ultra-long-haul routes (over 12,000km), 130 PDEW for long-haul 1 Air Canada operates one stop YYZ SYD with a stop in YVR. Air Canada launched non-stop YVR-BNE in June APEC Project TWG A Develop Air Connectivity in the APEC Region 27

28 Origin Airport routes (between 4,000km and 12,000km) or 75 PDEW for short-haul routes (under 4,000km) in the coming three years with behind and beyond potential and OD stimulation factored in (see section 4.3 below for a detailed breakdown of the factors). This filtering process led to the selection of seven routes that are presented in the table below, with more details in the next section. Origin Economy Destination Airport Destination Economy 2015 OD Demand 2015 Estimated Market Potential Distance viable for non-stop flight with current technology Market size adequate for nonstop service in the long term Potential Route in the long term YVR Canada BNE Australia Yes YVR Canada MEL Australia Yes YYZ Canada CAN China Yes YYZ Canada MNL The Philippines Yes YVR Canada BKK Thailand Yes YYZ Canada BKK Thailand Yes YYZ Canada SGN Viet Nam Yes YYZ Canada SYD Australia No YYZ Canada MEL Australia No YUL Canada SCL Chile No YVR Canada PVG Chile No YUL Canada PEK China No YYC Canada PEK China No YOW Canada CTU China No YVR Canada FOC China No YYZ Canada HKG China No YYC Canada HKG Hong Kong, China No YUL Canada HKG Hong Kong, China No YYC Canada ITM Japan No YVR Canada ITM Japan No YVR Canada FUK Japan No YUL Canada NRT Japan No YYZ Canada ITM Japan No YYC Canada MEX Mexico No YYC Canada MEX Mexico No YUL Canada LIM Peru No YVR Canada LIM Peru No YYC Canada MNL The Philippines No YWG Canada MNL The Philippines No YBG Canada MNL The Philippines No YUL Canada MNL The Philippines No YYC Canada ICN Republic of Korea No YYZ Canada SIN Singapore No YVR Canada SIN Singapore No YUL Canada BKK Thailand No YVR Canada SGN Viet Nam No Table 8: Summary of high-level route feasibility considerations APEC Project TWG A Develop Air Connectivity in the APEC Region 28

29 4.3 Proposed route analysis IATA narrowed the above selection to seven routes from Canada. This section examines the route potential and presents a forecast of current demand in the medium term Route #1 YYZ-MNL YVR-MNL 2015 total route potential definition: Origin Airport Destination Airport Destination Economy 2015 OD Nondirect Demand OD Captured Though Deorect Service OD Stimulation Behind/Beyond Connecting Potential YYZ MNL The Philippines (A) 224 (B) 80% (C) 11% (D) 50% Caculations (1) 180 (1) = AxB 21 (2) (2) = 1xC Subtotal (3) 200 (3) = 1+2 BNE-MNL Total Market Potential (2015 Base) (4) 397 (4) = 3/(1-D) Based on 2015 demand figures, IATA estimates that YVR-MNL presents a potential of 397 PDEW for direct service between the two cities. This potential would grow to 459 by 2018, as displayed in the short-term forecast in the following table. This forecast uses 2015 estimated demand and applies to it the IATA inter- and intra-regional global traffic forecast published by our Economics Division. Economy Pair City Pair 2015 Base Canada-Philippines YYZ-MNL Route #2 YYZ-SGN YYZ-SGN 2015 total route potential definition: Origin Airport Destination Airport Destination Economy 2015 OD Nondirect Demand OD Captured Though Deorect Service OD Stimulation Behind/Beyond Connecting Potential YYZ SGN Viet Nam (A) 70 (B) 80% (C) 39% (D) 50% Caculations (1) 56 (1) = AxB 22 (2) (2) = 1xC Subtotal (3) 78 (3) = 1+2 YYZ - SGN Total Market Potential (2015 Base) (4) 154 (4) = 3/(1-D) Based on 2015 demand figures, IATA estimates that the YYZ-SGN route presents a market potential of 154 PDEW for direct service between the two cities. This potential would grow to 178 by 2018, as displayed in the short-term forecast in the following table. This forecast uses 2015 estimated demand and applies to it the IATA inter- and intra-regional global traffic forecast published by our Economics Division. APEC Project TWG A Develop Air Connectivity in the APEC Region 29

30 Economy Pair City Pair 2015 Base Canada-Viet Nam YYZ-SGN Route #3 YVR-MEL YVR-MEL 2015 total route potential definition: Origin Airport Destination Airport Destination Economy 2015 OD Nondirect Demand OD Captured Though Deorect Service OD Stimulation Behind/Beyond Connecting Potential YVR MEL Australia (A) 50 (B) 80% (C) 56% (D) 51% Caculations (1) 40 (1) = AxB 23 (2) (2) = 1xC Subtotal (3) 62 (3) = 1+2 YVR - MEL Total Market Potential (2015 Base) (4) 128 (4) = 3/(1-D) Based on 2015 demand figures, IATA estimates that this route presents a market potential of 128 PDEW for direct service between the two cities. This potential would grow to 148 by 2018, as displayed in the short-term forecast in the following table. This forecast uses 2015 estimated demand and applies to it the IATA inter- and intra-regional global traffic forecast published by our Economics Division. Economy Pair City Pair 2015 Base Canada-Australia YVR-MEL Route #4 YYZ-CAN YYZ-CAN 2015 total route potential definition: Origin Airport Destination Airport Destination Economy 2015 OD Nondirect Demand OD Captured Though Deorect Service OD Stimulation Behind/Beyond Connecting Potential YYZ CAN China (A) 60 (B) 80% (C) 63% (D) 40% Caculations (1) 48 (1) = AxB 31 (2) (2) = 1xC Subtotal (3) 79 (3) = 1+2 YYZ - CAN Total Market Potential (2015 Base) (4) 130 (4) = 3/(1-D) Based on 2015 demand figures, IATA estimates that this route presents a market potential of 130 PDEW for direct service between the two cities. This potential would grow to 151 by 2018, as displayed in the short-term forecast in the following table. This forecast uses 2015 estimated demand and applies to it the IATA inter- and intra-regional global traffic forecast published by our Economics Division. APEC Project TWG A Develop Air Connectivity in the APEC Region 30

31 Economy Pair City Pair 2015 Base Canada-China YYZ-CAN Route #5 YVR-BKK YVR-BKK 2015 total route potential definition: Origin Airport Destination Airport Destination Economy 2015 OD Nondirect Demand OD Captured Though Deorect Service OD Stimulation Behind/Beyond Connecting Potential YVR BKK Thailand (A) 57 (B) 80% (C) 49% (D) 60% Caculations (1) 45 (1) = AxB 23 (2) (2) = 1xC Subtotal (3) 68 (3) = 1+2 YVR - BKK Total Market Potential (2015 Base) (4) 169 (4) = 3/(1-D) Based on 2015 demand figures, IATA estimates that this route presents a market potential of 169 PDEW for direct service between the two cities. This potential would grow to 195 by 2018, as displayed in the short-term forecast in the following table. This forecast uses 2015 estimated demand and applies to it the IATA inter- and intra-regional global traffic forecast published by our Economics Division. Economy Pair City Pair 2015 Base Canada-Thailand YVR-BKK Route #6 YVR-BNE YVR-BNE 2015 total route potential definition: Origin Airport Destination Airport Destination Economy 2015 OD Nondirect Demand OD Captured Though Deorect Service OD Stimulation Behind/Beyond Connecting Potential YVR BNE Australia (A) 52 (B) 80% (C) 54% (D) 51% Caculations (1) 41 (1) = AxB 23 (2) (2) = 1xC Subtotal (3) 64 (3) = 1+2 YVR - BNE Total Market Potential (2015 Base) (4) 131 (4) = 3/(1-D) Based on 2015 demand figures, IATA estimates that this route presents a market potential of 131 PDEW for direct service between the two cities. This potential would grow to 152 by 2018, as displayed in the short-term forecast in the following table. This forecast uses 2015 estimated demand and applies to it the IATA inter- and intra-regional global traffic forecast published by our Economics Division. APEC Project TWG A Develop Air Connectivity in the APEC Region 31

32 Economy Pair City Pair 2015 Base Canada-Australia YVR-BNE Route #7 YYZ-BKK YYZ-BKK 2015 total route potential definition: Origin Airport Destination Airport Destination Economy 2015 OD Nondirect Demand OD Captured Though Deorect Service OD Stimulation Behind/Beyond Connecting Potential YYZ BKK Thailand (A) 51 (B) 80% (C) 54% (D) 51% Caculations (1) 41 (1) = AxB 23 (2) (2) = 1xC Subtotal (3) 64 (3) = 1+2 YVR - BKK Total Market Potential (2015 Base) (4) 138 (4) = 3/(1-D) Based on 2015 demand figures, IATA estimates that this route presents a market potential of 138 PDEW for direct service between the two cities. This potential would grow to 160 by 2018, as displayed in the short-term forecast in the following table. This forecast uses 2015 estimated demand and applies to it the IATA inter- and intra-regional global traffic forecast published by our Economics Division. Economy Pair City Pair 2015 Base Canada-Thailand YYZ-BKK Proposed scheduled operations This section considers the above route through three main operational/feasibility criteria: Air service agreements. Airline network strategies and fleets. Route economics. Additionally, proposed operational aspects of the route are presented, including an indicative start date based on market maturity, a proposed airline to serve the route, type of aircraft to be used, flight frequency and estimated load factors Route #1 YYZ-MNL The YYZ-MNL route is currently served with one-stop service via Vancouver by Philippine Airlines. When Philippine Airlines takes delivery of its latest A , the range of the new aircraft will allow direct service between YYZ and MNL. The market is projected to have sufficient demand to support a two-daily service on this route with a healthy 73% load factor on the flights. APEC Project TWG A Develop Air Connectivity in the APEC Region 32

33 Route (nondirectional) Minimum Opening Date Airline Aircraft # of Seats Frequency per week Week Number of Pax per Flight Load Factor YYZ-MNL 2018 Philippine Airlines A % Route #2 YYZ-SGN YYZ-SGN is a very long route and potentially can be operated by Air Canada s B The distance between the two cities is close to the maximum range of the aircraft, so the airlines may have certain operational constraints if the flying conditions are not ideal (e.g. strong head wind), which is not included in this analysis. On a pure market base point of view, this route can be operated by Air Canada s B787-9 aircraft with 5-weekly service starting in 2018: Route (nondirectional) Minimum Opening Date Airline Aircraft # of Seats Frequency per week Week Number of Pax per Flight Load Factor YYZ-SGN 2018 Air Canada B % Route #3 YVR-MEL The YVR-MEL route is a long-haul route that has relatively low demand, which is ideal for the new generation of long-haul aircraft such as Air Canada s B787-8 that is configured with only 251 seats on board. IATA estimates if the service starts in 2017 with a 5-weekly frequency, the load factor will be around 79%: Route (nondirectional) Minimum Opening Date Airline Aircraft # of Seats Frequency per week Week Number of Pax per Flight Load Factor YVR-MEL 2017 Air Canada B % Route #4 YYZ-CAN YYZ-CAN can be started by China Southern with CAN as its main international hub. By using a B ER and 5-weekly service, the load factor should be around 68% when it starts in 2018: Route (nondirectional) Minimum Opening Date Airline Aircraft # of Seats Frequency per week Number of Pax per Flight Load Factor YYZ-CAN 2018 China Southern B ER % Route #5 YVR-BKK YVR-BKK s range and demand are ideal for Thai Airway s B787-8, enabling plenty of Southeast Asian connections in BKK via Thai Airway s extensive Asia network. Should the route start operating in 2017 with six flights per week, load factor is estimated to be 82%: APEC Project TWG A Develop Air Connectivity in the APEC Region 33

34 Route (nondirectional) Minimum Opening Date Airline Aircraft # of Seats Frequency per week Week Number of Pax per Flight Load Factor YVR-BKK 2017 Thai Airways B % Route #6 YVR-BNE The YVR-BNE route was opened by Air Canada in June 2016 using B787-9 to provide daily service Route #7 YYZ-BKK The YYZ-BKK is a very long-haul route and will require an aircraft with longer range, such as B ER, to operate. If this service is operated by Thai Airways from 2018 with 4-weekly service, the load factor is estimated to be 76%. Route (nondirectional) Minimum Opening Date Airline Aircraft # of Seats Frequency per week Week Number of Pax per Flight Load Factor YYZ-BKK 2018 Thai Airways B ER % 5 Conclusions and Opportunities In addition to the development of new air service in the medium term, other opportunities for air service development such as connectivity improvements, route frequency increases and long-term developments are also presented. 5.1 Connectivity improvements This section identifies poorly connected markets that could be better served by improved connecting times, thereby granting additional access to already existing yet less accessible connecting markets. IATA examined flights departing to and from the two main gateways in Canada: YVR and YYZ and is pleased to report that the connecting banks of the major airlines are generally very well aligned. Still, there is a small selection of connection improvements that can be suggested based on optimal connecting time-related considerations 2 : YVR Air Canada flight 64 from Incheon currently arrives in YVR at 11:50. If the arrival time can be brought forward by 45 minutes to 11:05, it will allow 10 more domestic and US connections to YXS, YYJ, YKA, YPR, YYZ, YXT, YZP, YLW, YYC and LAX. 2 Subject to slot availability APEC Project TWG A Develop Air Connectivity in the APEC Region 34

35 Air Canada flight 7 for Hong Kong, China currently leaves YVR at 13:20, missing connections from seven domestic markets namely YYJ, YSJ, YXC, YYZ, YWG, YKA and YEG. These connections can be enabled if the departure time moves back 45 minutes to 14:05. WestJet flight 1865 from Honolulu currently arrives in YVR at 07:10; if the arrival time can be brought earlier by 40 minutes, it will enable six more onward connections to YYC, YQR, YYZ, YXT, YSJ and YUL YYZ Air Canada flight 16 from HKG currently arrives in YYZ at 18:10, missing seven domestic and U.S. connections by 20 minutes. If the arrival time can be brought forward to 17:50, it will allow connections to JFK, EWR, YZR, YYB, YSB, IAD, DEN and YUL. Air Canada flight 87 departing for PVG currently leaves YYZ at 13:00. If this flight were brought back to 13:40, it would allow 11 more connections from Canada and the U.S., namely DTW, YOW, LGA, YTS, PHL, BOS, ROC, STL, YUL, YXU and DEN. Air Canada flight 31 departing for PEK leaves YYZ at 14:55 and misses connections from 12 Canadian and U.S. cities. If the departure were retimed to 15:25, it will allow connections from YQB, MSY, Newark, YXU, BOS, YOW, LGA, YWG, DCA, YTS, YQM and YUL. WestJet flight 1237 from MCO arrives in YYZ at 14:28 and misses six domestic onward connections in a 30-minute timeframe. If it were retimed to arrive at 13:58, it could potentially allow connections to YUL, YVR, YHZ, YEG, YYC and YFC. APEC Project TWG A Develop Air Connectivity in the APEC Region 35

36 5.2 Long-term new route opportunities As the growing economy continues to drive air traffic growth, some routes identified in section 4 are expected to become viable in the longer term: Origin Airport Origin Economy Destination Airport Destination Economy 2015 OD Demand 2015 Estimated Market Potential Distance viable for non-stop flight with current technology Market size adequate for nonstop service in the long term Potential Route in the long term YYC Canada KIX Japan Yes YUL Canada PVG China Yes YYC Canada HKG Hong Kong, China Yes YUL Canada HKG Hong Kong, China Yes YYZ Canada SIN Singapore Yes YVR Canada SGN Viet Nam Yes YVR Canada SIN Singapore Yes YUL Canada BKK Thailand Yes YYZ Canada MEL Australia Yes 5.3 Development of aircraft technology Table 9: Long-term route opportunities The latest aircraft available on the market, Airbus A and Boeing s B787-9, are capable of flying ultra-long-haul routes. The technical capabilities of these aircraft will allow new direct routes to be operated between APEC economies across the Pacific. The following maps illustrate the range limit 2 of the A and B B787-9 A Figure 6: Range limit for the latest generation of aircraft from Vancouver (Source: GCMap) 2 For illustration only. Based on published range for the base model of each aircraft type. Specific operating conditions may affect the range of the aircraft. APEC Project TWG A Develop Air Connectivity in the APEC Region 36

37 B787-9 A Figure 7: Range limit for the latest generation of aircraft from Toronto (Source: GCMap 6 Recommendations to improve air connectivity The various recommendations to support the improvement in air connectivity both generically and specifically for each APEC member economy are presented in this section. 6.1 Generic recommendations This chapter provides recommendations applicable to all economies, such as greater liberalization of air routes by allowing more access and the elimination of curfews and operational restrictions. Continue to liberalize the air services market to other APEC economies, allowing the fullest access to Canadian airports. Encourage airlines, in particular Air Canada, to explore opportunities in the ultra-long-haul market when they take delivery of new generation of long-haul aircraft. 6.2 Specific recommendations Ensure that adequate planning is in place for the international airports to support long-term traffic growth especially for YOW, YUL and YYZ, where terminal capacities are projected to be full by Closely work with the airline industry to enhance sustainability and profitability of the industry. APEC Project TWG A Develop Air Connectivity in the APEC Region 37

38 6.3 How the APEC economy s regulator can help Work closely with different stakeholders for example, Innovation, Science and Economic Development Canada, the Chamber of Commerce, etc. to gain a deeper understanding of the development of aviation demand. Ensure that major international airports have an adequate investment and improvement program to support future traffic demand. Explore the possibility of relaxing visa requirements for tourists. Reduce Passenger Movement Charge on international air passengers. APEC Project TWG A Develop Air Connectivity in the APEC Region 38

39 7. Appendix 7.1 Overview of IATA and IATA Consulting IATA IATA The International Air Transport Association was founded in 1945 as the prime vehicle for inter-airline cooperation in promoting safe, reliable, secure and economical air services for the benefit of the world s consumers. IATA provides fundamental support and leadership for the commercial aviation industry. IATA is fully committed to supporting the commercial aviation industry s stakeholders and governments in their efforts to achieve profitability and long-term viability. IATA s mission: To represent, lead and serve the airline industry. IATA s vision: To be the force for value creation and innovation, driving a safe, secure and profitable air transport industry that sustainably connects and enriches our world. IATA in numbers: 250+ member airlines 83% of total air traffic $387B processed by IATA financial systems 1,400+ employees 54 offices in 53 countries IATA Consulting IATA Consulting overview IATA Consulting has comprehensive experience in the full array of business challenges facing the aviation sector. Serving the airline industry for 70 years, IATA has developed unrivalled practical experience, which we bring forth to provide the best solutions to our clients. With our depth and breadth of aviation industry experience, we assist clients to maximize the value of their operating model, realize growth ambitions and gain insights that translate into sustainable competitive advantages. APEC Project TWG A Develop Air Connectivity in the APEC Region 39

40 IATA Consulting has expertise in the following areas: Our Clients IATA Consulting has successfully demonstrated its capabilities by providing airlines, airports, tourism offices and other organizations with accurate, unbiased and reliable high quality information and analysis to help them define and understand their markets, while ensuring their long-term facility development and financial success. IATA is trusted by multiple clients all over the world including airlines, airports, governments and aviation institutions. APEC Project TWG A Develop Air Connectivity in the APEC Region 40

41 Why IATA Consulting was chosen for this project IATA has, over time, recruited and retained some of the most highly experienced and capable aviation consulting resources within the aviation industry. Due to its position at the heart of the industry, IATA has access to exceptionally skilled and informed subject matter experts and specialists. IATA Consulting s objective is to make a positive difference in its clients performance, while delivering quality services to all industry stakeholders. IATA Consulting provides its customers with vast knowledge and expertise in all sectors of the industry worldwide. Our approach has been finely tuned to leverage IATA s global presence and industry thought leadership position in the development of tailored solutions that fit with local cultural considerations and embody international best practices. Our consultants rely on international state-of-the-art standards, unmatched access to data, and products and expert resources to provide cost-efficient and highly informed solutions. IATA is backed by a robust set of decision support tools, Airport IS and Pax IS have been essential to undertake this project. Airport IS and Pax IS are the most comprehensive aviation databases available in the marketplace, capturing 100% of traffic around the world and bringing together total market supply and demand under a single platform. The data provided is accurate and reliable, as it is captured through IATA s Billing and Settlement Plan (BSP). APEC Project TWG A Develop Air Connectivity in the APEC Region 41